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Why Deutsche Bank Sees Texas Roadhouse Benefiting Big From the Reopening Trade

The reopening trade is underway, and with new guidance from the Centers for Disease Control and Prevention (CDC), more Americans are getting back to normal. This includes going out to bars, restaurants, concerts and other live events, and many companies are poised to benefit from this. One analyst is taking a look in particular at the restaurant chain operator Texas Roadhouse Inc. (NASDAQ: TXRH), and the firm sees solid upside from here.

Deutsche Bank upgraded the stock to a Buy rating from Hold and issued a price target of $116, which implies upside of about 18% from the most recent closing price of $98.55. Note that this price target is only the base-case scenario. There’s room for even more upside in the bull case.

This current rating and price target imply revenue that might appear high in the absolute sense, but which also could be argued to be conservative, given what Deutsche Bank knows about the quarter-to-date strength that was disclosed in late April.

Deutsche Bank likes the company’s risk-reward profile, if trends from April continue throughout the balance of the year, which management indicated was feasible on the recent earnings conference call. As it stands, there exists the potential for material upside to consensus estimates, which would represent a true bull-case scenario.

Deutsche Bank concluded by saying this:

We anticipate that pushback to this note will largely revolve around valuation, and we get it. With that said, at current share price levels, we note that TXRH is trading at ~21.3x our 2022 Adjusted EPS estimate (ex cash), and at ~18.8x our 2023 estimate (ex cash), so we’re not sure that it is truly as expensive as it seems, given the long-term growth outlook. Regardless, and for our part, we think that the business momentum, the unit growth outlook, and the balance sheet strength will win out long enough for the shares to make new highs at some point later this year, and as such, we upgrade TXRH to Buy with this note.

At this point in the Casual Dining recovery, we feel good about “going with quality,” which is what we are doing here.

Furthermore, note that Zacks named Texas Roadhouse as its Bull of the Day stock on Monday. The analyst pointed out that a thriving to-go and meal-kit business helped reignite growth for this restaurant chain.

Excluding Monday’s move, Texas Roadhouse stock had outperformed the broad markets with a gain of about 26% year to date. In the past 52 weeks, the share price was up closer to 124%.

Texas Roadhouse stock traded around $99 on Monday, in a 52-week range of $46.84 to $110.75. The consensus price target is $111.00.